The Rise and Rise of Asia

Ian Davis, worldwide managing director McKinsey & Company, in his piece in Financial Times, London says that the world of 2015 will be a different place in which to do business from the world of today. He gives us five trends that will shape the business landscape;

• A shift in balance of economic activity – Asia, excluding Japan, accounts for 13 percent of world GDP while west Europe accounts for more than 30 per cent. In the coming 20 years, the two will converge while the US will continue to have the largest share for the next two decades.

• A billion new consumers will enter the global marketplace in the next decade. Most of these coming from Emerging Markets as they go beyond USD5000 annual household income, a point where discretionary spending begins.

• Technological connectivity will transform our lives and behaviour. We work not globally but instantaneously. More than 2 billion people use cell phones, there are 9000 billion emails a year and a billion Google searches a day, over half not in English!

• With a shift to knowledge-intensive industries, war for global labour and talent will be as important as global sourcing strategies; a pool of 33 million university-educated young professionals in developing countries is more than twice that in developed countries.

• As businesses go global, they will come under greater scrutiny and societal suspicion against them will grow.
If these are the trends for the next decade how should companies prepare themselves and develop business strategies alongside customer needs and growing competition.

First, the government must get their act together in terms of providing the right infrastructure (that includes transport, roads, power and electricity), legislate the right trade and economic policies and, labour laws that are at par with the global businesses.

A closer look at the implications of the trends;

Manufacturing and information technology services will shift dramatically to Asia. Global sourcing strategies drive businesses towards best quality at the most competitive prices. Manufacturing American cars in the US when the cost of manufacturing cuts down drastically in India or China makes no business sense. But for that to happen, countries must become centers of excellence. Industries in the country must revisit their strategy, overhaul business processes and have world- class talent. Therefore, there is need for companies to invest in corporate resources.
A billion new consumers (almost all in emerging markets), with information and access to the same products and brands, wherever they live, ability to shop online and geographical boundaries gone – what this means is that the consumer may not necessarily be from your neighbourhood or be living in your country. Starting from your source of competitive advantage, one can now have access to that huge pool of consumers across the globe, possibly with the same sort of sensibilities.

According to Thomas Friedman, technological connectivity is one of the things making the world flat and obliterating impediments to international competition. It is allowing countries that would earlier have been considered as unlikely competitors, to participate in the global supply chain for services and manufacturing. Technological connectivity puts the power back where it should belong – with the consumer. It impacts consumer behaviour in several ways, one of which is called ‘cocooning’ – consumers tend to stay at home as opposed to going out for entertainment or work and shopping, and that has spawned whole new industries of home theatre systems, home spas, homepubs, homeoffice and many others. It means that consumers can give instantaneous feedback to companies and sometimes form communities or pressure groups to express dissent against companies’ ways of working. The world has become seamless, and it never sleeps. I can ask for my bank details in the middle of the night and book my trip to Timbaktoo at the same time as well.

In a world paying a premium for knowledge workers, the IITs, the IIMs and the millions of graduates in India and other developing countries find themselves suddenly wooed in the war for talent. The move from service to knowledge economies has made the Asian stress on education a goldmine. And yet this pool is not enough. The business generated by coaching classes for students taking the IIT entrance exam in India is to the tune of USD1 billion.

Economic growth will be at the expense of the environment. Businesses will come under greater pressure as scandals and environmental mishaps seem inevitable. And these will also invite political and regulatory backlashes. In this context it is perhaps worth mentioning Unilever’s working together with Oxfam in Indonesia to gauge whether multinationals affect the livelihood of the poor in developing countries. One of the finding of the study was that the multiplier effect on employment in areas such as distribution and supply was significant.

For every country in Asia this is an opportunity that may not come its way in a long while. These trends provide the big backdrop against which to plan the future and soon, or it may be too late.

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